Request By:
Mr. Gary M. Smith
Attorney
Executive Department for
Finance and Administration
Capitol Annex
Frankfort, Kentucky 40601
Opinion
Opinion By: Robert F. Stephens, Attorney General; By: Charles W. Runyan, Assistant Deputy Attorney General
The Division of Physical Plant, Executive Department for Finance and Administration, gets numerous calls from various state agencies requesting the division to perform work in buildings which are leased from private owners. We assume these are short terms leases. The requests are normally for additional electric outlets, conduits for telephones, equipment hook-up, plumbing installations, and, in some cases, partition installations. These involve capital expenditures or improvements. We also assume that the lease documents contain no provisions for such improvements.
Your question is whether or not the Commonwealth may make capital improvements on privately owned property leased by the state for the use of its various agencies [the state or agency is lessee].
Section 3 of the Kentucky Constitution forbids the granting of "separate public emoluments or privileges" to any man or set of men, "except in consideration of public services." (Emphasis added). Section 171 of the Kentucky Constitution provides that taxes shall be levied and collected for "public purposes only." (Emphasis added) In essence, both constitutional sections relate to private purposes as contradistinguished from public purposes. Nichols v. Henry, 301 Ky. 434, 191 S.W.2d 930 (1946) 933.
The legislature has the "primary duty" of determining precisely what a public purpose is. (Emphasis added). Once it makes such a determination, the courts will not disturb such action so long as it has a reasonable basis. Industrial Develop. Auth. v. Eastern Ky. Reg. P1. Com'n, Ky., 332 S.W.2d 274 (1960) 276, 277.
Section 177 of the constitution prohibits the lending of credit of the Commonwealth to any individual or corporation.
Justice Palmore, in Industrial Development Authority, above, wrote that "whether the expenditure is for a legitimate public purpose resolves itself into the question of whether it bears directly and immediately or only remotely and circumstantially upon the public welfare. " (Emphasis added). However, it is well settled that a private agency may be utilized as the pipeline through which a public expenditure is made, the test being not who receives the money, but the character of the use for which it is expended. Kentucky Bldg. Commission v. Effron, 310 Ky. 355, 220 S.W.2d 836 (1949) 837.
KRS 45.360(8), relating to the authority of the Department for Finance and Administration to acquire all real property needed for state use, is couched in very general language and offers no guidelines as to the acquisition and improvements of leasehold interests.
The Department for Finance and Administration has the power and duty to control the use of real property owned or held [which could include leaseholds] by the Commonwealth or any state agency, and to determine the housing needs of state government. Here again no guidelines are set out as to any possible capital improvements of leaseholds held by the state. KRS 56.463(4). See also KRS 56.500.
There is no obligation upon a landlord to repair the premises or engage in capital improvements in the absence of a special agreement to do so when the contract of lease is made. Horstman v. Newman, Ky., 291 S.W.2d 567 (1956) 568. Further, a tenant is not entitled to recover of his landlord the value of improvements and repairs except in accordance with an express contract to that effect. Kessler v. Grosser, 300 Ky. 89, 187 S.W.2d 1012 (1945).
It is our opinion that under the broad authority of the Department for Finance and Administration, as set forth in the above mentioned statutes, the Department can, in the exercise of its sound business practice and judgment, in appropriately worded lease documents, provide for the state's making capital improvements on short term leaseholds. However, we make this proviso that it must reasonably appear that such expenditures bear directly and immediately upon the public welfare. It is further provided that such expenditures [regardless of whether the state can get credit for such expenditures from the lessor or whether the state has written provisions to recover the improvements upon the expiration of the lease] must be reasonably deemed to be a functional necessity for the particular agency and thus a public benefit when assessing all business factors.
Judge Palmore wrote in Commonwealth v. Burchett, Ky., 367 S.W.2d 262 (1963) 266, that:
"The judicial power of government should not be invoked against the discretion of an agency of the executive branch in determining what is in the public interest, including what particular property is needed in connection with a valid public project, unless there is such a clear and gross abuse of that discretion as to offend the guaranty of Const. § 2 against the exercise of arbitrary power."
While this making of capital improvements on short term leaseholds should be approached cautiously, we feel the above guidelines will adequately circumscribe this somewhat delicate area, especially if sound business judgment and reason are used.